Why Shares of Daqo New Energy Corp. Tumbled Today

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What happened

Shares of Daqo New Energy Corp. (NYSE: DQ) slumped on Thursday after the manufacturer of polysilicon for the solar industry announced a follow-on offering of American Depositary Shares (ADS). The stock was down 10.8% at market close.

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So what

Daqo plans to issue and sell 2 million ADS, each of which represent 25 ordinary shares, for $55 each. The underwriter of the offering has a 30-day option to purchase up to 300,000 additional ADS. The offering is expected to close on April 16, subject to customary closing conditions.

Daqo plans to use the proceeds from the offering for general corporate purposes including capital expenditure for further capacity expansion and working capital. If the underwriter fully exercises its option, Daqo will raise $126.5 million before fees.

Now what

This follow-on offering will dilute existing shareholders, which is why the stock declined on the news. But even after Thursday's decline, shares of Daqo are still up about 165% over the past year. For investors who bought in prior to the stock's meteoric rise, this setback is a drop in the bucket.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.